Posted on June 9, 2014 by iMFdirect
By Sanjeev Gupta and Enrique Flores
The Finance Minister answers her mobile. On the line is the Minister of Energy, who informs her that the country has struck oil and that he expects revenues from its sale to start flowing into the budget in the coming four years. While excited by the prospects of higher revenues—indeed the average resource-rich country gets more than 15 percent of GDP in resource revenues—she starts to ponder how to use these revenues for her country’s development. She is aware that only in rare cases have natural resources served as a catalyst for development; too often they have led to economic instability, corruption, and conflict or what has been termed as “the resource curse.”
Filed under: Economic research, Finance, Financial regulation, Fiscal policy, growth, IMF, International Monetary Fund, Investment, Reform | Tagged: Alaska, budget, energy, income, income distribution, macroeconomics, natural resources, Nigeria, oil, resource wealth, subsidies, wealth | Leave a comment »
Posted on June 4, 2014 by iMFdirect
By Jesus Gonzalez-Garcia and Francesco Grigoli
(Version in Español)
Government ownership of banks is still common around the world, despite the large number of privatizations that took place over the past four decades as governments reduced their role in the economy. On average, state-owned banks hold 21 percent of the assets of the banking system worldwide. In Latin American and Caribbean countries, the public banks’ share is about 15 percent, with some of them showing very large shares, for instance, Argentina, Brazil, Uruguay, and Costa Rica are all over 40 percent (see Figure 1).
State-owned banks play an important role in the financial system. They fulfill functions that are not performed by private banks, provide financing for projects that benefit the rest of the economy, and provide countercyclical lending (lending more when the economy is weak). But public banks usually respond to the needs of governments owing to the state’s obvious involvement in their administration. As a result, government’s participation in the banking system may weaken fiscal discipline by allowing the public sector to access financing that they would not obtain from other sources.
In our recent study, we use a panel dataset for 123 countries to test whether a larger presence of state-owned banks in the banking system is associated with more credit to the public sector, larger fiscal deficits, higher public debt ratios, and the crowding out of credit to the private sector.
Filed under: Economic outlook, Economic research, Emerging Markets, Español, Finance, Fiscal policy, Government, International Monetary Fund, Latin America, Public debt | Tagged: Argentina, bank credit, banking, big banks, Caribbean, Latin America, public sector, Uruguay | Leave a comment »
Posted on May 29, 2014 by iMFdirect
By Holger van Eden
Most economists would agree that institutions in general are incredibly important in helping to shape countries’ overall economic and fiscal outcomes. But which institutions really matter, and to what extent, is less clear.
A team of staff at the IMF recently completed a study, along with detailed country evaluations, that explores the G-20 countries’ efforts to strengthen their budget institutions in the wake of the global financial crisis, and evaluates their impact on fiscal policy. We ask whether strong budget institutions helped these countries to cope with the substantial fiscal consolidation needs that arose after the Great Recession. The evidence suggests that these institutions have indeed been important.
Budget institutions matter
In the study we identify 12 institutions (see figure1) that are commonly viewed as important for the effectiveness of fiscal policy. To be clear, the term “institution” is used in a broad sense—it encompasses processes, procedures, systems, legal frameworks, and organizational entities which contribute to the budget process.
Filed under: Advanced Economies, Emerging Markets, Europe, Finance, Financial Crisis, Fiscal policy, International Monetary Fund, Reform | Tagged: budget institution, budget preparation, fiscal reporting, G-20 | Leave a comment »
Posted on May 28, 2014 by iMFdirect
By Chris Papageorgiou, Lisa Kolovich, and Sean Nolan
(Version in Español)
Low-income countries have spent a lot of time thinking about how they can achieve faster growth, and we have done some research to help them. We found that pursuing export diversification is a gateway to higher growth for these economies. Using a newly constructed diversification toolkit, our empirical analysis shows that both the range and quality of the goods a country produces has a direct impact on growth
Low-income countries have historically depended on a narrow range of primary products and few export markets for the bulk of their export earnings.
But export diversification is associated with higher per capita incomes, lower output volatility, and higher economic stability—relationships that can be tracked using our new publically available dataset, which gives researchers and policymakers access to measures of export diversification and product quality for 178 countries from 1962-2010.
We have looked at two measures of export diversification and their impact on economic growth. One measure captures diversification into new product lines, the other development of a more balanced mix of existing products. Analysis using these measures shows that export diversification in low-income countries is indeed among the most effective drivers of economic growth.
Filed under: Africa, Asia, Economic outlook, Economic research, Finance, Globalization, growth, International Monetary Fund, Investment, LICs, Low-income countries | Tagged: agriculture, Asia-Pacific, China, economic diversification, European Union, export diversification, infrastructure, investment, Kenya, low income countries, manufacturing, South Asia, Sub-Saharan Africa, Tanzania, Uganda, Vietnam | Leave a comment »
Posted on May 22, 2014 by iMFdirect
By Alexander Klemm, Andre Meier, and Sebastián Sosa
(Version in Español)
Governments in most emerging economies, including in Latin America, have reduced their exposure to U.S. interest rates over the past decade, by issuing a greater share of public debt in domestic currencies.
Even so, sudden changes in U.S. interest rates still have the power to roil financial markets in emerging economies. Witness last year’s “taper tantrum”—when the Fed hinted at the possibility of tapering its bond purchases sooner than previously expected, causing bond yields to rise sharply. Continue reading
Filed under: Economic outlook, Emerging Markets, Fiscal policy, Government, growth, International Monetary Fund | Tagged: Brazil, capital flows, emerging economies, emerging markets, financial stability, IMF, interest rates, International Monetary Fund, Latin America, monetary policy, South Africa, taper tantrum, Treasury, Turkey, U.S. interest rates, United States | Leave a comment »
Posted on May 21, 2014 by iMFdirect
By Serkan Arslanalp and Yingyuan Chen
As the financial market turbulence of May 2013 demonstrated, the timing and management of the U.S. Fed exit from unconventional monetary policy is critical. Our analysis in the latest Global Financial Stability Report suggests that if the U.S. exit is bumpy (Figure 1), although this is a tail risk and not our prediction, the result could lead to a faster rise in U.S long-term Treasury rates that impacts other bond markets. This could have implications not only for emerging markets, as widely discussed, but, also for other advanced economies.
Indeed, historical episodes show that sharp rises in US treasury rates lead to increases in government bond yields across other major advanced economies.
Filed under: Advanced Economies, Finance, Financial regulation, growth, International Monetary Fund | Tagged: banks, IMF, interest rates, International Monetary Fund, U.S. Treasury, United States | Leave a comment »
Posted on May 19, 2014 by iMFdirect
By Min Zhu
(Version in 中文,Français, Português, and Español)
There is a group of fast-growing low-income countries that are attracting international investor interest—frontier economies. Understanding who they are, how they are different, and how they have moved themselves to the frontier matters for the global economy because they combine huge potential with big risks.
Get to know them
The first thing to note is that some of these countries already have moved to the lower-middle income group. While a working definition of frontier economies is subject to further discussion, broadly speaking, these countries have been deepening their financial markets, such as Bangladesh, Kenya, Nigeria, Mozambique, and Vietnam.
Filed under: Africa, Asia, Emerging Markets, growth, IMF, International Monetary Fund, Investment, LICs, Low-income countries | Tagged: Bangladesh, Bolivia, fiscal policy, Ghana, iMFdirect, Kenya, monetary policy, Mozambique, Nigeria, services sector, Tanzania, Vietnam | Leave a comment »
Posted on May 14, 2014 by iMFdirect
By Luc Laeven, Lev Ratnovski, and Hui Tong
Large banks were at the center of the recent financial crisis. The public dismay at costly but necessary bailouts of “too-big-to-fail” banks has triggered an active debate on the optimal size and range of activities of banks.
But this debate remains inconclusive, in part because the economics of an “optimal” bank size is far from clear. Our recent study tries to fill this gap by summarizing what we know about large banks using data for a large cross-section of banking firms in 52 countries.
We find that while large banks are riskier, and create most of the systemic risk in the financial system, it is difficult to determine an “optimal” bank size. In this setting, we find that the best policy option may not be outright restrictions on bank size, but capital—requiring large banks to hold more capital—and better bank resolution and governance.
Filed under: Economic research, Finance, Financial Crisis, Financial regulation, Fiscal, Fiscal policy, Government, International Monetary Fund, Reform | Tagged: banking regulation, banks, big banks, financial markets, Financial regulation, financial stability, Global Financial Stability Report, IMF, iMFdirect, iMFdirect blog, International Monetary Fund, monetary policy | Leave a comment »
Posted on May 10, 2014 by iMFdirect
By Christine Lagarde
(Version in عربي and Français)
Earlier this week, the first stop on my Middle East and North Africa trip was Morocco, which displayed its legendary hospitality and kindness. Located at the crossroads of Africa, Europe, and the Middle East, the country holds so much promise as a dynamic hub for the region.
Morocco has remained a model of stability despite a challenging environment—the economic crisis in Europe, political transition in Arab countries, and more. Throughout all this, the economy has proved resilient, and serious reforms are under way. Continue reading
Filed under: Economic outlook, Finance, Fiscal, Fiscal policy, Français, Government, growth, IMF, Inequality, International Monetary Fund, Middle East, Reform, Transition, unemployment, عربي | Leave a comment »